TRANSMITTAL LETTER FOR BOARD MEETING OF OCTOBER 2, 2025
COMMITTEE ON PENSION, HUMAN RESOURCES & CIVIL SERVICE
Mr. John P. Murray, Acting Executive Director
Title
Authorization to amend the policy regarding Retiree Contribution Rates for Health Care Benefits
Body
Dear Sir:
It is recommended that the policy regarding retiree contribution rates for health care benefits be amended to include an annual rate cap.
In 1985, the Board of Commissioners adopted a policy of paying 75% of the cost of retiree health care coverage, while retirees contributed the balance of 25%. This retiree contribution rate policy remained in place until 2011. On September 15, 2011, the Board approved a change in the contribution rate policy that increased the retiree contribution rate from 25% to 50% over a 10-year period. The 50% retiree contribution rate was achieved in the 2021 health benefits plan year.
Retiree health care costs have risen significantly since the implementation of the revised contribution rate policy, particularly for the non-Medicare eligible retiree population. The retiree rates are based on actual medical and prescription drug claims cost for the retiree population in the prior 12-month period. Since the rates are directly related to actual claims cost incurred, the result has been high annual increases in retiree health insurance rates. Given the percentage of those costs that the retiree pays (50%), the monthly premium deducted from a retiree’s annuity check has grown substantially. For example, during the period from 2018 to present, the premium for the retiree PPO plan has risen from $885.70 per month for a retiree plus spouse to $1,446.93 per month. Similarly, the premium for the HMO plan during that period has risen from $543.55 per month for a retiree plus spouse to $995.91 per month. The concern is that these sharp increases are making the PPO and HMO plans unaffordable for many pre-65 retirees.
The District has experienced extremely high medical and prescription drug claims for the retiree population in the most recent 12-month period. The impact of these high claims on the monthly rates is magnified because of the small population of retirees enrolled in these pre-65 plans. Based on the claims for the current rate period, the 2026 retiree rates would increase 16.59% for the PPO plan and 44.09% for the HMO. This would result in an additional $240.08 per month for a retiree and spouse enrolled in the PPO plan increasing the monthly premium to $1,687.01 and an additional $439.11 per month for a retiree and spouse enrolled in the HMO plan increasing the monthly premium to $1,435.02.
To provide some rate relief to pre-65 retirees in periods with significant increases in claims, it is recommended that an annual rate cap be added to the retiree contribution rate policy. This cap would limit the increase in the monthly premium for the retiree PPO and HMO plans in a 12-month period with high claims. It is recommended that the rate cap be set at 10%. If the rate increase calculated based on the claims for the 12-month period exceeds the cap for one or both of the plans, the rate increase would be limited to rate cap percentage. If the calculated rate increase is below the cap, the actual increase will be used to determine the rate. This would result in the retiree population contributing less than the 50% contribution rate required by the policy for that 12-month period but would aid in keeping plan increases affordable for retirees.
Approval is requested to amend the policy related to retiree contribution rates for health care benefits to include an annual rate cap of 10% effective with the 2026 benefits plan year.
Requested, Thaddeus J. Kosowski, Director of Human Resources, TJK:JEF
Disposition of this agenda item will be documented in the official Regular Board Meeting Minutes of the Board of Commissioners for October 2, 2025
Attachment